Corporate VC funds foreshadow auto sector M&A wave
A raft of specialist fundraising activity by technology and automotive corporates suggests start-ups in nascent areas of the mobility industry could benefit from a near-term uptick in M&A activity.
Jenny Lee, a managing partner at GGV Capital, told AVCJ that new VC programs by original equipment manufacturers (OEM) in the car industry were a direct response to changes in consumer behavior related to vehicle electrification and relatively new business models such as ride-sharing. This is expected to drive exit opportunities for venture investors that support start-ups in these segments at a sufficiently early stage.
"Strategics investing is a prelude to acquisition," Lee said. "The OEMs are trying to learn about the market, and when the time is right in the next 3-5 years, they are likely to make acquisitions. If VCs choose to wait until they see market leaders, they may be priced out of the M&As. You do have to get in earlier if you want to get your 3x or more."
Recent fundraising activity by OEMs includes the launch of a $1 billion VC fund by Nissan Motor, Mitsubishi Motors, and Renault that will maintain a strong presence in Asia with offices in China and Japan. This followed closely on the launch of a $200 million auto technology fund by Chinese internet giant Baidu and Singapore's Asia Mobility Industries.
GGV invests across a number of new mobility segments including electric vehicles (EV), two-wheelers, technological infrastructure, and autonomous driving. Recent deals include participation in a $348 million round for Chinese EV maker Xpeng Motors, as well as an investment of undisclosed size in Momenta, a Beijing-based developer of road sensors and mapping software.
The global automotive industry is experiencing fundamental changes in user behavior trends and supply chain networks due to advances in mobility technology. Asian investment in this context is expected to be driven by an increase in the number of drivers due to rising wealth bases, smart city initiatives aimed at reducing urban congestion, and Chinese government pressure to reduce vehicle emissions.
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